Blog Posts

It seems likely now that the Democratic Party will be using income inequality as a wedge issue in the 2014 mid-term election, but, as I explain in a column at e21, conservatives have serious proposals for dealing with poverty and inequality, and should welcome a debate on these issues in the coming election.

The battle lines in this emerging debate are becoming visible over the extension of long-term unemployment benefits and raising the federal minimum wage requirement. Much like the 2012 presidential contest, the president and his allies want to advance proposals that poll very well and which many Republicans oppose for principled reasons in an attempt to paint GOP candidates as insensitive to the plight of those struggling in today’s still sluggish economy.

But this latest embrace of economic populism by the president is not a dead-certain political winner. After all, President Obama has been in office for five years, and Mitt Romney is not on the ballot this year. Like it or not, today’s economy should rightfully be considered the Obama economy, not the Bush economy or the Republican economy. The president may want to assume the pose of an innocent bystander to today’s economic conditions, but attempts to blame his political opponents for sluggish growth and the diminished prospects many families now face should be an increasingly hard sell with voters.

This week, the U.S. News “Debate Club” blog posed the question of whether the federal government’s short term deficit has been reduced enough, following the less dismal than usual projections in last month’s Congressional Budget Office report. I weighed in on the debate, arguing that the United States still faces serious fiscal challenges, especially the challenge of controlling the long-term growth of entitlement spending.

But the core fiscal challenge for the country, which remains unaddressed, is the unrelenting growth of entitlement spending -- a problem that will become acute in the next twenty years. Between 1973 and 2012, entitlement spending rose from 7.4 percent of GDP to 13.1 percent of GDP. By 2035, spending on Social Security, Medicare, Medicaid and the health care law's new entitlements is expected to add another 5.4 percent of GDP to the spending side of the federal ledger. Absent serious reform, the budgetary pressures created by this entitlement spending surge will either force massive cuts in the rest of the budget or very large tax increases, or perhaps trigger a debt crisis.

The prospects for a “grand bargain” on the budget finally seem dead, and as I explain at National Review Online, the fault lies with tactical blunders made by President Obama.

There was a period when the prospects for a “grand bargain” were on the rise — right after President Obama’s reelection in November 2012. The president was riding high and had campaigned on a “balanced approach” to deficit reduction, by which he meant any deal to reform entitlements and cut spending must also increase taxes, especially on the rich. In the weeks after his reelection, the president might have been able to press a demoralized congressional GOP into agreeing to a large, multiyear budget framework along these lines.

That certainly would have been in his interests. Based on where things now stand, his presidency will be defined in part by the $7 trillion in debt he will run up during his time in office. A “grand bargain” on the budget at the beginning of his second term could have fundamentally altered the legacy of his budgetary performance in office, turning what is sure to be viewed as a rather large failure into perhaps a modest achievement. Moreover, a multiyear budget deal would have taken fiscal issues, including the sequester the administration despises, off the table for the remaining years of the president’s time in office, freeing up his administration to press for agenda items he clearly is more passionate about.

But for some unfathomable reason, the president decided to pursue a different strategic approach. Instead of moving quickly to do what was necessary to create the conditions for a budget deal, he chose instead to pursue a two-part strategy on taxes and spending. That was a huge mistake.

The president has repeated over and over again the slogan that a budget plan needs to be “balanced,” by which he means the spending cuts must be matched with comparable tax hikes. His own budget fails this test miserably. The only deficit reduction in it comes from a net $1.1 trillion tax hike over ten years (on top of the $0.6 trillion tax hike in the fiscal-cliff deal and $1 trillion in Obamacare). There are zero net spending cuts in the budget. Zero. When the “doc fix” for Medicare physician fees and a smaller change in Pell Grant funding are removed, as they should be, from the administration’s current-law baseline and placed instead with the other policy choices the budget reflects, the budget results in a net $10 billion spending increase over the coming decade.

Over at the US NewsDebate Club blog I have a post arguing that the administration’s 2014 budget proposal is not the compromise that the president and his supporters are trying to sell it as.

To sum it up, the president's 2014 budget would result in massive tax and debt increases over the next decade, with no serious entitlement reform. The ten-year tax hike is $1 trillion, on top of the $0.6 trillion enacted in January and $1 trillion in Obamacare. But even with massive new taxes, the debt would still rise to $19 trillion in 2023, up from $5.8 trillion at the end of 2008. That's not the basis for striking any kind of deal with the GOP.

Normally, political candidates and parties are far better off looking forward, not backward. But the two cannot really be separated, and Republicans need to improve their economic message by looking forward and backward at once. The prevailing understanding of what caused the economic collapse of 2007-2009 — and of how best to respond to such events — is so distorted and so damaging to the advancement of conservative economic principles that it can no longer be ignored. It has not only saddled Republicans with the blame for a terrible economic crisis, but has also made it difficult for them to explain the elements of their economic agenda in the aftermath of the crisis.

Before they can regain their footing in presidential politics, therefore, Republicans will need to recast and revitalize their basic economic message — helping voters see what conservative economics has and has not involved in the past, and what it can offer them in the future.

Tevi Troy and I have a new column at National Review Onlineon how President Obama has ignored sensible strategies for limiting the impact of the budget sequestration, opting instead to create a politically advantageous panic over the impending cuts.

It seems clear that the administration has the capacity to make sequestration’s impact excessively unpleasant, and these statements could make one wonder whether the administration is determined to do so. But does a sequester have to be disastrous? Could the White House wield the scheduled cuts in such a way as to minimize the impact felt by the American people? Our experience inside the executive branch suggests that this is indeed the case: The administration could have prepared for the sequester in ways that would steer cuts toward less sensitive programs and activities. In fact, it still has the capacity to adjust some, although certainly not all, of the ways in which the sequester is applied.

Earlier today I participated in a short video produced by the American Enterprise Institute with reactions from scholars and fellows to some of the statements made by the president in his State of the Union Address. The full video is available here. I also have a brief post up at National Review Online with some of my thoughts on the president’s (predictably) disappointing speech.

He said we can never pull back on promises made in the form of entitlement commitments — without ever mentioning that those promises have never been fully funded and will lead, at some point, to a fiscal and economic crisis. There’s nothing more fiscally irresponsible than to suggest that entitlement commitments can never be revised — but that’s essentially what the president said in his speech tonight.

Over at National Review Online I have a column on how conservatives should approach the debate over entitlements and taxes in the aftermath of the fiscal-cliff resolution.

The main criticism, and an accurate one, of the fiscal-cliff agreement is that it secured a tax hike for the president that was not paired with any spending restraint whatsoever. The bill includes spending increases (an extension of unemployment compensation and another one-year undoing of the scheduled cut in Medicare physician fees), but not nearly enough cuts to offset them. Nothing has been done to address the real problem in the nation’s finances: the ballooning costs of entitlement programs.

Some conservatives have taken heart in the fact that the agreement did not raise the debt limit, setting the stage for a more successful budgetary confrontation in another 60 days or so, when federal borrowing is expected to bump up against the current statutory ceiling. The argument is that raising the debt limit is so unpopular with the public that Republicans will have substantial leverage to extract meaningful spending cuts from the president. Unfortunately, this is more wishful thinking than a sound assessment of the political landscape.

This morning Isabel Sawhill from the Brookings Institution and I debated the merits of domestic spending cuts for dealing with the fiscal cliff on C-SPAN’s Washington Journal. For those who are interested, you can watch the video (about 45 minutes) on the C-SPAN website here.